Erste Drops as KBW Warns of Hungary Mortgage Loss: Vienna Mover

Erste Group Bank AG (EBS), the owner of the second-biggest Hungarian lender, declined the most in two weeks in Vienna after Keefe Bruyette & Woods analysts warned it may incur losses in Austria’s neighboring country.

Erste fell as much as 4.8 percent and was trading 3.5 percent lower at 24 euros by 2:39 p.m. in Vienna, the lowest intraday level since Aug. 28. That was the second-worst performance after DNB ASA (DNB) in the 47-company STOXX 600 Banks index, which was little changed.

Erste’s losses in Hungary may rise this year if Prime Minister Viktor Orban’s government forces banks to convert Swiss franc-denominated mortgages into forint at historical rates, KBW analysts Ronny Rehn and Hadrien de Belle said in a note to clients. They lowered their investment opinion on the stock to underperform from market-perform.

“Not all is well and we challenge Erste’s 2013 operating profit guidance of ‘up to -5 percent’ pre-provision operating profit,” they said in the note. “The increasingly likely negative impact from a conversion of FX mortgages in Hungary has not been sufficiently reflected in estimates.”

According to the analysts, there is a 75 percent probability Erste will book a 300 million-euro ($398 million) loss on its 2.7 billion-euros of franc mortgages. Lending income in Romania, where Vienna-based Erste owns the biggest bank, may also drop because of lower interest rates, the analysts said.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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